Is the Euro in danger?
TEXT OF INTERVIEW
Tess Vigeland: Ireland has finally bowed to pressure and accepted a $120 billion bailout from the European Union and the International Monetary Fund. Prime Minister Brian Cowen says he’ll step down once austerity measures are in place. Unions are planning a march against those measures in Dublin on Saturday.
World currency markets reacted by pounding the Euro. And it seems the only question left is, which country is the next domino to fall? Joining us now is our European Bureau Chief Stephen Beard — Hi Stephen.
Stephen Beard: Hello Tess.
VIGELAND: So the Irish have really been dragged, kicking and screaming, into this bailout. So the question is, does it work? Does it save the Euro?
BEARD: No. It’s brought a little bit of calm to the markets, but not much. There’s still a suspicion that the focus is going to shift pretty soon to other heavily indebted countries in the Eurozone, like Portugal and Spain. And if both of those countries have to be bailed out too, and if there are doubts then about the big one — Italy — then it could well be game over for the Euro in its present form.
VIGELAND: That’s hard to imagine — we just got the Euro.
BEARD: Well it wouldn’t go away entirely. The Eurozone — the 16 countries that make up the block — could split into stronger countries like Germany, France and the Netherlands, that still have the Euro. But the poor or peripheral countries like Portugal, Greece and now perhaps Ireland too, may revert to their original national currencies. It would cause absolute mayhem in financial markets. It’s unlikely, but it is possible.
VIGELAND: Boy, to be talking about Ireland as a poor country. You know, I lived there 10 years ago in the middle of the Celtic Tiger — I guess now that tiger’s got its tail between its legs.
BEARD: Yes. The Irish have undoubtedly been humiliated. This was the great EU success story. This has actually touched another raw nerve, a historical one: Ireland got its independence from the U.K. only about 80 years or so ago. It was a very enthusiastic member of the EU, and it was very keen to adopt the Euro because it got itself out from under the shadow of the old colonial master, Britain. But now, they’ve got the IMS and EU officials in Dublin telling them how to run their economy.
VIGELAND: Well let’s talk a little bit about some of the reason behind this success for Ireland these past few years, which is American corporations basing themselves there: Intel, Google, Microsoft. How does all this potentially affect those companies?
BEARD: Potentially because of the corporation tax rate — it’s very low in Ireland, only 12.5 percent — and that’s what attracted a lot of these big American and other foreign companies into Ireland. But countries like Germany and France with higher tax rates have always rather resented this; they say it is unfair competition, and it’s been reported that they’ve been pressing for this Irish tax rate on corporations to be raised as part of the bailout deal. That would be disastrous. Hewlett-Packard, for one, has already made it clear that they may well pull out. The Irish government says they’re standing firm and they won’t touch that tax rate, but they are under a lot of pressure to raise that rate.
VIGELAND: All right, Marketplace’s Stephen Beard. Thanks so much.
BEARD: O.K. Tess.
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